Behind 5 Major Health Plan Acquisitions

Margaret Dick Tocknell, for HealthLeaders Media , November 28, 2011

Although the healthcare services company never tipped its hand that it was interested in the Medicare Advantage market the acquisition, which is expected to close in July 2012, makes perfect sense. The languishing national economy has slowed employee hiring and limited growth opportunities in the employers-sponsored insurance market while enrollment in government sponsored insurance is forecast to explode. Instead of taking three to five years to develop the infrastructure to ramp up its own Medicare Advantage enrollment Cigna set its sights on the Nashville-based HealthSpring.

The health plan brings more than 340,000 Medicare Advantage and 800,000 Medicare Prescription Drug Plan members in 11 states and the District of Columbia to the Cigna fold. "It's a turnkey acquisition," explains Nathan Goldstein, executive vice president and partner in Gorham Health Group. "HealthSpring is well established and successful in the Medicare Advantage market. It has a strong relationship with its physicians and is well-known by beneficiaries and regulators. Cigna can tap into all of that right away."

During a conference call held after the acquisition was announced, Cigna officials noted the combined customer footprint of the two companies provides scale and diversification to grow in existing markets and expand into new geographies.

Cigna's commercial group retirees and individual membership will provide a feeder pool for HealthSpring's Medicare Advantage products and Cigna's portfolio of specialty programs can be leveraged to benefit of the HealthSpring customer base. Look for Cigna to develop commercial products that incorporate HealthSpring's physician incentive and alignment model. Expect the two companies to take a cautious approach to the Medicaid market by entering selected markets

This may just be the beginning of Cigna's acquisitions. Company officials have expressed interest in acquiring some smaller Medicare Advantage health plans.

2. Highmark Inc. and West Penn Allegheny Health System

In June, in the midst of a public and acrimonious contract dispute with the University of Pittsburgh Medical Center, Highmark announced its intentions to acquire West Penn Allegheny Health System. The acquisition of the financially troubled health system seemed motivated as much by spite as business sense.

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